Professional Documents
Culture Documents
2d 186
Petitioner is a life insurance agent who has been engaged since 1927 in
purchasing from other insurance agents their rights to renewal commissions on
life insurance policies. In 1948 he filed his individual return on the cash
receipts and disbursements basis. He reported no income on account of
assigned renewal commissions that year although he received during the year
the total sum of $45,500.70 from assigned commissions on 1,648 policies. Of
this amount $23,563.33 represented receipts over and above the aggregate
original cost of the assignments to the petitioner, which cost had been
recovered by him in the form of prior receipts. The Tax Court held, 22 T.C.
1019, that $22,694.50 (being the $23,563.33 less $868,83 representing
unrecovered costs of policies lapsed during 1948) was taxable to the petitioner
as ordinary income for 1948. Petitioner now seeks to upset this determination
on this appeal. He raises three question: (1) whether he realized any taxable
income on the receipt by him of commissions on assigned renewals; (2) if so,
whether the income received is taxable as ordinary income or long-term capital
gain; and (3) whether he may deduct from such income the total cost of all
The petitioner further contends that even if the receipts of assigned renewal
commissions in excess of their original cost do in fact constitute taxable
income, such taxable income should be treated as a long-term capital gain. He
cites no authority for this contention. 26 U.S.C.A. (I.R.C.1939) 117 requires
that there be a 'sale or exchange' of certain defined capital assets in order that
income may receive capital gain treatment. The receipt of commissions is not a
'sale or exchange'. And petitioner has never sold any of the renewal
commissions purchased by him. See Fairbanks v. United States, 1939, 306 U.S.
436, 59 S.Ct. 607, 83 L.Ed. 855; Commissioner v. Starr Bros., 2 Cir., 1953, 204
F.2d 673; General Artists Corp. v. Commissioner, 2 Cir., 1953, 205 F.2d 360,
certiorari denied, 1953, 346 U.S. 866, 74 S.Ct. 105, 98 L.Ed. 376; Guthrie v.
Commissioner, 1940, 42 B.T.A. 696.
III
The taxpayer also contends that he should be allowed to deduct, against the
The taxpayer also contends that he should be allowed to deduct, against the
profits realized in the current year, the cost of acquiring additional assignments
of renewal commissions, which will start to yield payments only in future
years. The cost of acquiring additional assignments of renewal commissions is
a capital expenditure to be recovered by allocation against the income derived
from the asset acquired; it is not, in its entirety, an 'ordinary and necessary'
business expense of the year of purchase. 26 U.S.C.A. (I.R.C.1939) 23(a)
(1), 23(l), 43; Treasury Regulations 111, 29.41-3(2).
The decision of the Tax Court is affirmed.